At this time of year, you may be considering topping up your superannuation contributions and perhaps claiming a tax deduction. There have been a number of changes to the superannuation concessions in the past few years and so we present this summary to help clarify the new rules.
Concessional (tax deductible) contributions cap: $25,000
Whether you are an employee, self-employed or a salaried director of your own business intending to make additional “salary sacrifice” super contributions, you will need to decide well before 30 June 2021.
If you are retired and between age 67 and 75, you may also be eligible to claim a personal tax deduction for super contributions against your personal investment or other income, provided you can pass a “work test.“
Personal top up contributions
If you are an employee or salaried director, compulsory Superannuation Guarantee contributions of 9.5% paid on your behalf during the 2020/2021 financial year count towards your concessional cap of $25,000.
New rules mean that any remaining concessional cap not used by your employer can be claimed by you as a personal tax deduction. The Government made this change to improve the flexibility of the super system so that more employed Australians can use their full concessional contributions cap.
Timing is important!
Whether paid personally or by an employer, in order to be tax deductible contributions must be in the hands of the superannuation fund no later than 30 June 2021. It will be important that contributions are paid at least a few days before 30 June.
The ATO have ruled that even though a contribution payment has left your business or
personal bank account, it will not be tax deductible unless received and banked by the superannuation fund. Internet transfers that do not reach a superannuation fund’s bank account by 30 June, are not tax deductible. It is possible that a direct transfer from your bank account, or BPAY say on Monday 28 June 2021 may not reach the fund’s bank account by 30 June 2021 and won’t be tax deductible, so act early!
For example, for employer’s using the ATO’s Small Business Superannuation Clearing House the ATO have advised business owners that in order to allow for normal processing times, contributions need to be paid to the ATO by 5.30pm on Wednesday 23 June 2021, a week before 30 June 2021. We recommend that you check with your superannuation fund for similar cut-off times for accepting contributions.
Catch Up Concessional Contributions
You may be able to carry-forward any unused amount of your $25,000 concessional contribution cap not used in the last 2 financial years and claim it this financial year.
To be eligible to carry forward any of your unused concessional cap:
This change may make it easier for small business owners with varying cash flow, or people with varying capacity to save, to contribute to superannuation and benefit from the tax concessions, as do those with regular incomes.
You can find out if you have a carry-forward concessional cap through your MYGOV account at ATO/Super/ Carry forward concessional contributions. Alternatively, contact us.
Non-Concessional (undeducted) contributions cap: $100,000
Non-concessional contributions to superannuation are not taxable when received by a superannuation fund and are also not tax deductible, but do allow you to invest your personal savings in a superannuation fund and enjoy low rates of tax on the investment earnings.
The non-concessional cap for 2020/2021 is $100,000 per person. New rules prohibit non-concessional contributions completely where your total superannuation balances in all superannuation funds equalled or exceeded $1.6 million on 1 July 2020.
The “Bring Forward” Rule
For those under age 65, a “bring forward” rule may apply which will allow you to contribute up to $300,000 (3 x $100,000) now, but nothing for the next 2 financial years. You must have less than $1.4 million in your total superannuation balances across all superannuation funds at 1 July 2020 in order to be eligible to use the full bring forward amount of $300,000. Even if you are currently aged 65 or more, you can qualify for the bring forward rule if you were at least age 64 on 1 July 2020.
In last year’s Federal Budget, the Government announced its intention to extend access to the bring forward rule from those under age 65, to those under age 67. Unfortunately, that change was not approved by the Senate. In the recent Budget, an announcement was made to extend the bring forward rule all the way to age 75, however it is likely to have some limitations on how much you have in super in order to qualify. Any changes are not expected to apply until 1 July 2022.
Superannuation Guarantee Increase – 1 July 2021
A reminder to employers that the Superannuation Guarantee rate increases from 9.5% to 10% of each employee’s ordinary time earnings, effective from 1 July 2021. The increase does not apply to contributions payable for the quarter ended 30 June 2021 that can be paid up until 28 July 2021. The 10% rate applies to all earnings paid after 30 June 2021. You may wish to ensure your payroll systems will account for the change, and factor in the increase to your business cash flow forecasts. The Superannuation Guarantee rate is scheduled to increase by 0.5% each subsequent year, to reach 12% of an employee’s earnings from 1 July 2025.
Contributions After Age 67 – Changes to the Work Test
Prior to 1 July 2020, to be eligible to make any voluntary contributions after reaching age 65, you were required to pass a work force participation test. For the 2020/2021 financial year and future years, the age for application of this test has been increased to 67.
If you are currently retired, over age 65 but under age 67, you may be able to make voluntary contributions to your superannuation fund this financial year that you could not do last year.
Age 67 and over?
If you are currently aged between 67 and 74 you may still be able to contribute to superannuation if you pass the work force participation test. This “work test” requires you to have worked in paid employment or self-employment of at least 40 hours within 30 consecutive days at any time within the financial year before a voluntary concessional or non-concessional superannuation contribution can be made.
The work test exemption
Australians aged 67 to 74 may still be able to make voluntary contributions for 12 months from the end of the financial year in which they last met the work test. To be eligible you must have:
Satisfied the work test in the financial year before the year in which you made the contribution e.g. for the 2021 financial year, you worked at least 40 hours within a 30 day period between 1 July 2019 and 30 June 2020; and
Your total super balance as at 30 June 2020 (from all of your superannuation accounts) is less than $300,000.
Over age 75?
If you are aged 75 or more, you cannot contribute to a superannuation fund. If employed, your employer is still required to pay compulsory contributions of 9.5% of your wage, but you cannot elect to make your own additional salary sacrifice or personal contributions.
If you are a low or middle-income earner and make personal non-concessional contributions to your super fund, the Government will also make a contribution (called a co-contribution) to your fund, up to a maximum amount of $500. To receive the maximum Government co-contribution, you must:
Be less than 71 years old at the end of the financial year on 30 June 2021
Have assessable income* in 2020/2021 of less than $39,837and 10% or more of that income must come from employment or carrying on a business;
Have made at least $1,000 of personal (undeducted) contributions to your super account during the financial year, but no more than your non-concessional contribution cap of $100,000.
You had less than $1.6 million in total combined superannuation entitlements as at 1 July 2020
* assessable income + fringe benefits + salary sacrifice super contributions (if any)
A partial co-contribution may be available where your income is between $39,837 and $54,837.
Low Income Super Tax Offset
The low-income super tax offset (LISTO) is a Government super payment of up to $500 to help low-income earners save for retirement. For 2020/2021, if your income is less than $37,000, the Government will refund the 15% tax paid on any concessional superannuation contributions made on your behalf, up to a maximum amount of $500. This means that most low-income earners will pay no tax on their super contributions. You do not need to apply for this tax offset. If you are eligible it will be applied automatically when you lodge your personal income tax return for 2021.
When you split your contributions, you transfer or roll over a portion of the contributions you recently made to your super account, to your spouse’s super account.
This can be a useful technique in evening up the superannuation balances between spouses and maximising the available superannuation concessions in the future e.g. the $1.6 million personal cap on superannuation when transferring to the pension phase.
You can split concessional (taxable) contributions but not non-concessional (undeducted) contributions
You can split up to 85% of your concessional contributions, including compulsory 9.5% contributions made by your employer. Only 85% can be split as your superannuation fund must first deduct the 15% contributions tax.
You cannot split contributions if you are over age 65, or under age 65 and retired.
You can only elect to split contributions with your spouse after the end of the financial year
You need to complete an ATO Contribution Splitting Application Form and send it to your superannuation fund, after the end of the financial year.
Spouse Contributions Tax Offset
The Government has extended the spouse tax offset to assist more couples who support each other in saving for retirement. You can claim a personal tax offset against your tax payable of up to $540 for non-concessional contributions made on behalf of your dependant spouse. The tax offset is calculated at the rate of 18% of the contribution made, so a contribution of $3,000 x 18% attracts the maximum tax offset of $540 against your personal tax payable.
You and your spouse are resident taxpayers, living together
Your spouse was under age 75 at 1 July 2020
You make non-concessional contributions to a superannuation fund in the name of your spouse
Your spouse has not already made maximum non-concessional contributions for the year and has less than $1.6 million in total superannuation entitlements at 1 July 2020
Your spouse’s income* is $37,000 or less
You claim the spouse contribution in your personal income tax return
*assessable income + fringe benefits + salary sacrifice super contributions (if any)
This is factual information about taxation and statutory annual limits that apply to the current financial year, and do not take into account your personal circumstances. We accept no responsibility for persons acting on the matters contained herein without first obtaining specific advice from us that takes into account your personal circumstances.
We are not licensed financial advisers so we make no recommendation as to whether you should actually make, increase or decrease superannuation contributions. Superannuation funds are deemed to be “financial products” by the Corporations Law. Taxation is not the only consideration when considering investing in a financial product. You should consider seeking advice from the holder of an Australian Financial Services Licence.
Please contact us if you require further information or clarification of the information presented or seek independent financial advice from a licensed financial adviser.